MARC has affirmed its AA- rating on Segi Astana Sdn Bhd’s RM415.0 million ASEAN Green Medium-Term Notes facility (MTN facility). The rating outlook has been revised to negative from stable. The revised outlook mirrors that of its parent WCT Holdings Berhad (AA-/negative) which has provided a cash deficiency support undertaking that was the basis of a one-notch rating uplift from Segi Astana’s standalone rating of A+. The liquidity support from the parent is to meet the final repayment under the MTN facility in 2028 in the event Segi Astana is unable to procure RM135.0 million in refinancing 12 months prior to the final repayment date.    

On a standalone basis, Segi Astana’s credit profile has improved, stemming from higher occupancy rate and improved car park fees collection that have led to stronger cash flow. These factors are moderated by pressures on rental rates. Segi Astana operates an integrated complex, gateway@klia2, at Kuala Lumpur International Airport 2 (klia2) under a 25-year build-operate-transfer (BOT) concession expiring in 2037 (with an option to extend for another 10 years). 

 

As at end-September 2018, the occupancy rate for gateway@klia2 rose to 86.8% (end-2017: 80.0%) on higher net lettable area (NLA) of 376,769 sq ft (end-2017: 369,908 sq ft). The increase in NLA was due to a conversion of common areas to rentable space. MARC views that the increased occupancy on a larger NLA, despite a 10% tenant turnaround during gateway@klia2’s first lease expiry period in 2017, reflects renewed demand following the management’s recent strategy on leasing retail space at the mall. On a larger NLA, Segi Astana’s average rental rate declined to RM19.48 psf as at end-September 2018 (2017: RM20.45 psf). Its 5,690 parking bays generated RM41.0 million in car park fee collection during the period.  

 

For 9M2018, Segi Astana’s revenue remained flat at RM90.5 million (9M2017: RM90.1 million), partly attributable to the tenant transition period when no rental was collected from premises under renovation. The sustainability of tenancies and rental growth at gateway@klia2 would primarily hinge on the number of airline operators at klia2 given the catchment at gateway@klia2 comprises mostly passenger traffic, meet/greet visitors and the airport’s internal staff. While klia2 recorded higher passenger traffic of 30.3 million compared with 28.2 million at Kuala Lumpur International Airport (KLIA), the increase in passenger service charges (PSC) at klia2 to level with KLIA from January 1, 2018 could weigh on the growth of airlines operating from klia2. In addition, the departure levy on all outbound travellers by air from June 1, 2019 could affect prospective airline passengers. 

Segi Astana’s base case cash flow projections assume an 88% occupancy rate from 2020 onwards and an average gross rental rate at the retail mall of RM18.00 psf with an escalation rate of 3% every three years. The projections also incorporate Segi Astana’s commitment of annual dividend distributions not exceeding RM25.0 million from 2019 onwards. Accordingly, Segi Astana’s cash flows are expected to yield minimum and average pre-distribution debt service cover ratios (DSCR) of 3.02x in 2021 and 3.41x throughout the term of the MTN facility.  

 

MARC notes that under the base case scenario, Segi Astana may not require the full refinancing amount of RM135.0 million should the company be able to maintain financial discipline, particularly with regard to dividend distributions. Given that the concession to operate gateway@klia2 has a tail period of eight years from the end of the MTN facility in 2028, and even if the 10-year extension is not granted, there is still sufficient time buffer for refinancing.  

 

Segi Astana’s standalone rating could be upgraded if the cash flow metrics reflect sustained improvement through steady occupancy, rental rates and disciplined approach to dividend payout. Conversely, downward pressure on the standalone rating would occur if cash flows are affected by declining occupancy, rental rates and/or a decrease in the car park fee collection.